Kiddie Tax: What You Should Know About Your Child’s Unearned Income

 

Under certain circumstances, part of a child’s unearned income might be taxed at the parents’ tax rate. This is commonly called the kiddie tax.

Under the Tax Cuts and Jobs Act (TCJA), the kiddie tax rules have changed. For tax years beginning any time from 2018 to the end of 2025, a child’s net unearned income is taxed under the ordinary income and capital gain rates of estates and trusts.

Because of this, the tax situation of the child’s parent or the unearned income of siblings will no longer affect a child’s tax.

TCJA Application of Kiddie Tax

The kiddie tax under the TCJA applies to any child who:

  • Must file a return
  • At the end of the year, was one of these:
    • Under age 18
    • Age 18 and didn’t have earned income that was more than half of their own support
    • A full-time student over age 18 and under age 24 who didn’t have earned income that was more than half of their support 
  • Has at least one living parent at the end of the tax year (a child isn’t subject to the kiddie tax rules if both parents are deceased)
  • Doesn’t file a joint return for the year
  • Has more than a certain amount of unearned income during the tax year. Ex: For 2019, this amount is $1,100.

Kiddie Tax Rules: More Than Unearned Income?

Unearned income is any income that isn’t earned income for purposes of the foreign earned income exclusion.

Earned income for this purpose means:

  • Wages
  • Salaries
  • Professional fees
  • Other amounts you got in exchange for personal services you did

Unearned income for the purpose of the kiddie tax rules includes:

  • All taxable interest
  • Ordinary dividends
  • Capital gains (including capital gain distributions)
  • Rents
  • Royalties
  • Taxable social security benefits
  • Pension and annuity income
  • Taxable scholarship and fellowship grants not reported on your W-2
  • Unemployment compensation
  • Alimony
  • Income (other than earned income) received as the beneficiary of a trust
  • Any other income that isn’t earned income

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